Export surge flagged after boom

Export surge flagged after boom - The West Australian

The Reserve Bank says there are 18 months left in the mining construction boom but it is increasingly confident it will be replaced by a surge in mineral exports.

In its quarterly monetary policy statement, the Reserve expressed growing confidence about the state of the Australian economy, lifting its forecasts for growth.

But it conceded that trying to work out the future of the global economy was increasingly difficult, with both positive and negative risks looming large.

The Reserve this week left official interest rates on hold, signalling it was comfortable with current settings.

The monetary policy statement shows why the bank is confident about holding the cash rate at 3.5 per cent, lifting its forecasts for economic growth half a percentage point for this year.

Though it slightly lifted its underlying inflation forecast because of the carbon tax, it still had inflation forecast to sit within its target band for the next two years.

The bank expected spending on resources projects to peak some time next financial year, although it conceded there were still big doubts over the timing of that peak and its "subsequent gradual decline".

But instead of a fading boom giving way to an economic slowdown, the Reserve believed there would be a big improvement in exports of commodities such as iron ore and coal.

"It is expected that as resource investment declines, growth in resource exports will increase given the ramp-up in productive capacity of the bulk commodities," it said.

A consequence of Australia's strong economic performance, and of the mining sector, continues to be the strong dollar.

The Reserve said the high dollar, at the $US1.06 mark, could have a more contractionary impact on the economy than previously thought.